NZD/USD moves above 0.6000 despite NZIER’s recommendation for a rate cut
- NZD/USD appreciates as the US Dollar extends its losses amid growing US-debt concerns.
- The US deficit could increase by $3.8 billion if Trump's “One Big Beautiful Bill” passes through the Senate floor.
- NZIER’s half of the members suggested that the RBNZ should deliver a 25 basis-point rate cut on Wednesday.
NZD/USD hits fresh six-month highs, with trading around 0.6030 during the Asian hours on Monday. The pair continues its winning streak for the second successive day as the US Dollar remains under downward pressure amid rising United States (US)-debt concerns.
The US fiscal deficit could increase further when Trump's “One Big Beautiful Bill” passes through the Senate floor. The Congressional Budget Office (CBO) noted that the bill is expected to increase the deficit by $3.8 billion, as it would deliver tax breaks on tip income and US-manufactured car loans.
Moreover, Trump’s bill may increase the risk of bond yields staying higher for longer. Higher bond yields can keep borrowing costs higher for consumers, businesses, and governments, which increases uncertainty surrounding the United States (US) economy.
Half of the members of the ‘Shadow Board”, the New Zealand Institute of Economic Research (NZIER), suggested that the Reserve Bank of New Zealand (RBNZ) should deliver a 25 basis-point Official Cash Rate (OCR) cut in the upcoming Monetary Policy Statement on Wednesday. One member recommended a 50 basis-point cut, while several members suggested that the central bank keep the OCR unchanged in May.
The RBNZ is widely anticipated to lower the Official Cash Rate by 25 basis points as inflation remains low, while growth remains a major concern. Markets expect the RBA interest rate to fall to around 3.0% or 2.75% by the end of the year.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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